Monday, October 15, 2018

ICT Group NV stock price moves more than intrinsic value

Conclusion (last year): "ICT Group has a strong balance sheet and the Value per share is increasing, but at the moment the Price (quoted value) seems too high for the Defensive Investor at €12.2 in June 2017. People who bought after 2009 are right to be satisfied with the company's as well as the share's recent performance." After that, the share price went up to €17 and is now down to €11,75.

"The Intelligent Investor" Benjamin Graham Defensive analysis:

SECTOR: [PASS]  ICT Group is in process management. Technology and financial stocks were considered too risky to invest in when this methodology was published. 

SALES: [FAIL] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. 
ICT Group sales of €105 million, based on 2017 sales, fails this test.

CURRENT RATIO:  [PASS] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. 
ICT Group current ratio €41m/€23m of 1,8 passes this test...almost ;)

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for 
ICT Group is €11 million, while the net current assets are €18 million. ICT Group passes this test.

[FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. ICT Group's earnings were negative in 2012 and 2013 and are not higher than 10 years ago, so the company fails this test.

Earnings Yield:  
[FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. ICT Group's E/P of 5% (using last years Earnings) fails this test.

Graham Number value: 
[FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. ICT Group has a Graham number of (15 x €0,6 EPS x 1,5 x €5 Book Value) = €8,1 

Dividend: €0.35/€11,75 = 3% 
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